Author | Wing Yi Edit | Su Jianxun
If you pay attention to the enterprise service market and don't know PPG now, you will most likely be left behind.
Since the beginning of this year, the word PLG has been circulated in the domestic enterprise service circle, and some investors have added in the latest signature: "Pay attention to the investment direction of PPG and so on."
PLG is not a new word. Since 2020, foreign venture capital circles have begun to discuss this concept, and silicon valley venture capital blogs have almost all written PPG over and over again.
The full name of PLG is Product Led Growth, which simply means that companies get their products right and end users are able to complete most of the process of selling — from using a product to finally paying for it, without even having to touch business sales.
This trend has also changed the market strategy of some established corporate service products. Large public companies such as GoDaddy, PagerDuty, Nutanix and ServiceNow are also launching free versions to enter the market using PPG.
But can the PLG really support an "investment area"?
The right to speak in procurement has changed, and product centrism has returned
The popularity of PLG should start from the major corporate service companies listed in the past two years.
PLG has received attention from the venture capital community and has been clearly transmitted by the secondary market – since 2019, a large number of enterprise service companies have landed in the secondary market, including Slack (acquired for $27.7 billion), Zoom ($55.7 billion), Atlassian (market value $99.7 billion) and other star companies, all of which have experienced spontaneous communication and achieved amazing growth with very little marketing expenses.
An American investment firm called OpenView is a big fan of the PPG concept. Since 2018, the agency has continued to export content about PLGs.
Source: OpenView
According to OpenView statistics, from 2012 to 2020, 21 companies have landed in the secondary market, including a number of star companies known to the public, which have created a market value of more than $200 billion.
And they're also doing better than other SaaS companies. The first is to grow faster, and the time from inception to IPO is significantly shorter – many of these companies can reach the IPO stage in 10 years compared to the previous 10-20 years. The post-listing performance was also quite good, especially after the business growth.
Among the PLG companies, the most well-known in China is the video conferencing tool Zoom. From its inception in 2011 to its launch in 2020, Zoom spent 9 years and grew exponentially during the 2020 pandemic, with more than 200 million users.
Notion, which just got a large amount of financing in October this year, had only 3 people when it had 1 million users in 2019. During the epidemic, the number of Notion users has increased from 4 million in 2020 to 20 million this year, and it is important to share a large number of users in TikTok, Reddit and other communities.
The concept of PLG (Product Driven Growth) corresponds to the traditional Sales Driven Growth (SLG) model. From PRG to SLG, it reflects the change of corporate procurement discourse.
Categorized by major procurement roles, OpenView divides enterprise IT procurement into three phases: the CIO era (1980-1990) – the non-CEO executive era (2000s) – and the end-user era (after 2010).
In the past, the enterprise IT architecture was relatively simple, and to B company wanted to sell software, usually negotiated by the sales representative and the CEO of the company, and the list was taken down, corresponding to a relatively large budget, and the subsequent long deployment implementation cycle. But as the company's IT architecture becomes more complex, the division of labor within the company becomes clearer, such as the emergence of a CTO-like role, and non-CEO executives begin to make purchasing decisions.
Another big background is the cloudification of enterprise IT architecture. 2000 coincided with the era when companies such as Salesforce led the SaaS revolution, and after 2010, enterprises have initially completed the cloud, and the IT architecture has moved to the cloud computing 2.0 stage. Business is born and grown in the cloud, infrastructure can be expanded anytime, anywhere, flexible purchases, and procurement power is further delegated to the supervisor or even individual of a specific business team.
For some products that are closer to the C-end, such as Slack, a collaborative communication tool within the enterprise, the PLG path begins to show its role. Front-line workers have a great experience, with word-of-mouth communication, and ultimately influencing executive decision-making, so the role of driving product communication is called internal champion. For commercial versions that are clearly divided into multiple price points, the team leader can complete the purchase process without even having to contact the sales.
It can be imagined that compared with the traditional SLG (Sales-Driven Growth) model, it is ideal for To B to drive the product through the whole process of sales by front-line employees. This means that companies are able to spend less on marketing and spend most of their budget on creating best product practices.
The reality, though, is bone-chilling. Most of the PLG patterns only work in scenarios that are close to the end user, such as the tools they use on a daily basis: internal communication tools, design platforms, internal knowledge bases/databases, and so on.
OpenView divides enterprises that fit the PPG growth model into four broad categories: developer and product tools, back-office support and operations, user operations, and productivity and collaboration tools. According to Clearbit statistics, 40% of the IPO PRG companies' products are for developers and product tools.
Now talk about PPG, too early?
It seems that PLG is a trend that people love: more product-centric, less marketing costs, and economies of scale. But if it is put into the domestic market, there are many more factors to consider and the misunderstandings to avoid.
After explaining the concept of PPG to a corporate service investor, 36Kr's first reaction was: "Isn't this bottom-up?" ”
When the domestic SaaS market rose after 2010, many startups focused on free and started from small and medium-sized customers, and some service companies tried to attract front-line employees with products and then converted. But that didn't come in return for the market returns it deserved. Between 2016 and 2017, the free-based strategy gradually failed, and many manufacturers turned to medium and large customers to start having stable revenues.
The domestic SaaS market has been developing for nearly a decade, and users' initial consumption awareness has been cultivated. PLG is a good expectation for the next stage of development of enterprise services.
A corporate service investor told 36Kr that from the overall performance growth point of view, the sales model of the domestic enterprise service market is far from being PPG-based, but from the valuation point of view, SaaS companies such as Youzan and Kingsoft Office have responded positively after landing in the secondary market, which also makes the primary market quite optimistic.
It's not too early to talk about PPG, it's a noteworthy signal, but the relevant concept needs to be clear. First, PLGs, while bottom-up, are not synonymous with free or start with small teams/businesses – OpenView data shows that 62% of PLG companies are still targeting the mid-tier enterprise market and companies with more than 100 people.
In today's context, PLGs emphasize a growth path, a sense of "end-user emphasis", but this still needs to be built on the traditional sales model.
An entrepreneur in the field of office automation told 36Kr that the current domestic corporate service procurement habits are still obviously top-down. Even if it is a PPG company that looks so powerful now, it must have experienced a painful SLG stage in the early days of its establishment, otherwise it must be made up later.
Slack, the handlebar of the PLG, is a proof of this. In the early days of its establishment, Slack seriously managed communities such as Medium to achieve spontaneous word-of-mouth communication, and also combined search optimization and application integration in brand marketing strategies. At a time when the monthly active users reached 2.3 million and the revenue was $64 million, Slack did not even have a sales, but now, Slack has established a strong sales channel to support subsequent growth.
Companies need to carefully adopt PPG at different times and in different track choices. Obviously, PLGs are more suitable for products that users can figure out the usage and value in a short period of time, preferably with high synergy and social attributes, such as chat tools, open source products, development tools, and so on. In addition, SaaS pricing is also a difficult problem, whether to set the grading pricing, where to set the paywall... All determine whether the PPG path can work.
Slack's early user growth curve
PLG will also have an impact on the valuation of corporate services, which is also worth the attention of entrepreneurs and investors. SaaS companies take high growth as the core indicator of development, but PPG company before the ARR reaches $10 million, its growth curve is relatively flat, until the later ushered in explosive growth. Early in the business process, OpenView recommends measuring company growth in terms of natural growth rates (NRG) rather than traditional metrics such as CAC.
In a word, the PLG model accumulates a lot of money and needs to be cultivated slowly in the initial stage, whether through community, word-of-mouth transmission or others. But we might as well imagine what the enterprise services market will look like in the future: as decision-making power moves toward end users and saaS goes to buyers' markets, the importance of product experience and word-of-mouth will increase as never before – whoever captures the user will seize the future.